Budget Growth Forecasts Ring Alarm Bells

"The budget
figures for medium-term economic growth in New Zealand
should ring alarm bells", the executive director of the New
Zealand Business Roundtable, Roger Kerr, said
today.

"Earlier policy reforms and recent favourable
conditions have helped New Zealand weather the international
downturn and maintain a robust fiscal position.

"However,
over the next decade the economy is expected to grow by only
around 28% in total, an annual average growth rate of barely
2.5% a year. In no year does the forecast growth rate
exceed 3.5%.

"This contrasts with the performance of the
economy in the decade to 2002 when it grew by 42%, or an
average rate of 3.6% a year. Clearly the trend growth rate
is falling rather than rising, in line with business sector
warnings that too many government initiatives have been
anti-growth.

"This outlook means that New Zealand is
nowhere near achieving growth rates consistent with the
government's top priority goal of restoring average incomes
to the top half of the OECD rankings. With this week's
budget in Australia confirming the Australian economy is
likely to continue to achieve annual growth rates in the
3-4% range, the gap in trans-Tasman living standards looks
set to widen.

"Worse, the budget does not foreshadow
measures capable of arresting this slide, such as a lower
government spending ratio, much greater private sector
involvement in bottleneck areas like electricity and
transport, and a serious attack on welfare dependency.

"A
raft of small-scale grants, taskforces and summits does not
add up to a credible growth strategy.

"The Australian
government has used its operating surplus to cut taxes. If
it is serious about its growth objective, the government
should be cutting taxes in ways that would do most to
increase growth, as recommended by the McLeod Review.
Measures to improve the tax treatment of company
superannuation schemes and small and medium-size businesses
are welcome but minor in their impact.

"There is no sign
that the government recognises that increasing regulation of
business and roadblocks like the Resource Management Act are
creating an uncertain and hostile environment for private
investment.

"Regrettably, the gap between the government's
goals and its actions is not closing", Mr Kerr said. "It is
now clear that the failure to build on earlier policy
improvements, coupled with the backward steps the government
has taken, mean that New Zealand is losing ground. More
credible growth policies need to be implemented with
urgency."

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